Support

A cookie is a piece of data stored by your browser or device that helps websites like this one recognize return visitors. We use cookies to give you the best experience on BNA.com. Some cookies are also necessary for the technical operation of our website. If you continue browsing, you agree to this site’s use of cookies.

Marketing Services

Bloomberg Next marketing services allow clients to elevate their brands and extend their reach through our established and trusted expertise, enhanced with engaging event production, appealing design, and compelling messaging.

The CFPB’s
suit against Fargo, N.D.-based Intercept Corporation in the U.S. District Court for the
District of North Dakota says the company is a “covered person” subject to agency
action because it provides payments or other processes to consumers. Intercept disagrees,
saying it serves merchants, not consumers.

Judge Ralph R. Erickson March 17
dismissed the suit. He said the agency failed to muster facts to support its allegations of
unfair acts or practices by Intercept. The ruling allows the CFPB to refile its claims,
and any such move could be telling, according to attorney Oliver I. Ireland, a partner
with Morrison & Foerster in Washington. Ireland said an amended complaint might include
more detail on the CFPB’s theory of the case — that a payment processor that serves
merchants has a legal duty to protect consumers served by those merchants.

“How they respond to this will be interesting,” Ireland told Bloomberg BNA. “The CFPB
will have to spell out what they mean.”

CFPB Sues Intercept

The CFPB’s suit, filed in June 2016, said Intercept allowed consumer lenders, debt
collectors, and other business clients to make unauthorized or illegal debits and
charges from consumer bank accounts.

Intercept moved for dismissal in August 2016, arguing in part that it’s not a “covered
person” subject to CFPB enforcement or its lawsuit. The company said it doesn’t deal
directly with consumers, and therefore doesn’t meet the definition of a “covered person.”

Next Step Scrutinized

The issue of “covered person” status is an important question in the case, and one
that Erickson touched on early on in his opinion. In reciting the facts, he said Intercept
is a “covered person” and a “service provider” under the Dodd-Frank Act. However,
Erickson didn’t elaborate.

Brian Melendez, a partner with Dykema who manages the firm’s Minneapolis office, said
Erickson took the CFPB’s allegations as true in ruling on the motion to dismiss.

“The judge found that he could dismiss the CFPB’s claims without reaching the question
of whether Intercept was, in fact, a ‘covered person’ —
that is, even if the CFPB was right, its complaint still didn’t state a claim against
Intercept,” Melendez said.

How the CFPB responds will be significant, according to Ireland, because the agency
will have to show its cards. The CFPB’s basic argument, he said, is that a payment
processor owes a duty to consumers when it processes payments for a merchant that
will debit a consumer’s account.

“At law, the processor is acting as the agent of the merchant,” Ireland said. “The
CFPB is departing from the historical architecture of that payment arrangement by
saying that even though you’re the agent of the merchant you have a duty to police
the merchant and protect the consumer. It’s kind of an aggressive theory.”

According to Ireland, the dismissal may require the agency to buttress its argument
in order to press its case.

“The court seems to be saying that if that’s the theory, then the CFPB will have to
spell out how consumers are being hurt and how it all squares with UDAAP,” Ireland
said, referring to the CFPB’s authority against unfair, deceptive and abusive acts
and practices. “It’s not clear whether this is just a drafting issue in terms of amending
the complaint or whether it goes to the core of the CFPB’s theory.”

To contact the reporter on this story: Chris Bruce in Washington at
cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at
MFerullo@bna.com

All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.

Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)

Notify me when updates are available (No standing order will be created).

This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.

Put me on standing order

Notify me when new releases are available (no standing order will be created)